06 Dec Selling your business

Start planning now.

Typically the interest of an owner in his or her business represents a large chunk of their personal wealth. The business can offer a significant capital value and make the difference between a successful or disappointing retirement. Unfortunately many business owners do not allow sufficient time to prepare the business for an optimal sale. This compressed time often prejudices the expected value as four very important aspects of the sale get rushed or even neglected.

1. Put your best foot forward.
You need to make sure that your business presents confidently and convincingly when it comes to the sales process. Diligent and accurate record keeping will give the potential buyer a good sense of its historical and expected future performance. Having tax affairs in order is always at the forefront of a buyer’s mind as many entrepreneurs tend to blur the lines between their personal affairs and those of the business. Regulatory compliance, especially in highly regulated sectors, is another area which buyers will scrutinize keenly.

The enthusiasm to buy a business can also be dampened where the owner’s eventual exit leaves big gaps in the business, symptoms of not developing staff and being too hands-on. The new owner wants continuity rather than having to engage in expensive training and managing fallout in the process.

You also need to examine aspects that you might have purposefully ignored as you harvested rather than invested on that last stretch to retirement. It may seem small to you, but if the buyer has to spend 100k on a new website because yours is not mobile friendly or no longer compatible, that initial enthusiasm of the buyer starts waning or edging towards a price less than what you had hoped for.

Some years before your planned exit date, it’s wise to start figuring what aspects need to change in order to put your best foot forward. Put yourself in the buyer’s shoes as a departure point.

2. Provide an eloquent solution.
The second reality is that it often takes much longer than anticipated to attract a purchaser that is willing, and more importantly, able, to pay the desired price. Many people will express an interest in the business, but few are actually able to make the required investment. Often, similar businesses in the industry can represent a good target as they understand the associated risks and, in many cases, your business could also have strategic and financial value to them such as acquiring new customers, removing competition, leveraging your strengths, rationalization etc.

Think strategically. Who are the players in the industry which might benefit most by acquiring your company? What are they looking for? If you don’t have that benefit right now, what do you need to put in place in order to provide an eloquent solution to a targeted buyer? Can they afford you? Clearly, this type of planning cannot happen overnight.

3. Walk your talk
Thirdly, buyers take much comfort when the exiting owner manager agrees to warrant the performance of the business over the following two to three years. This commitment to underwrite the performance of the business enables the owner manager to push for a higher price, but it also means that he or she must be prepared to remain very involved in the business during this “earn-out” period.

It’s never a good idea to over-sell the value of your business as this can backfire badly, introducing legal, financial and reputational risk which could derail your objectives.

4. Structuring the exit
Finally, many owner managers do not properly plan the tax efficiency of their exit from the business. This has a direct bearing on how the exit should be structured from a legal perspective.

Talk to Mettle’s William Marais who can help you maximize the value of your exit from the business.

wmarais@mettle.net
021 915 3370
Mettle.net
mettle.net/businesses/corporate-and-specialised-finance